The latest Commodity Briefing Service (CBS) series published by S&P Global Market Intelligence look at the diverging price outlooks for lithium and cobalt. The research highlights that the lithium market is expected to experience a lower price environment, while cobalt prices are expected to be supported by sustained market deficits.
Global passenger plug-in vehicle sales are forecast to decrease by 7.63 per cent year over year to 1.95 million units in 2020, as a result of weaker total vehicle sales due to COVID-19. Global plug-in penetration will increase by 0.2 percentage points to 3 per cent as the increases in Europe offset the decline in China.
China is expected to be the largest contributor to the global sales decline, due to the lower penetration seen since the New Energy Vehicle subsidies were reduced by approximately 50 per cent in July 2019 and the negative impact of COVID-19 on total passenger vehicle sales (down by 11%).
“We expect China’s passenger plug-in sales in 2020 to decline by 0.16 million units to 0.9 million units, and the penetration rate to decline by 0.2 percentage points to 4.7 per cent,” S&P Global Market Intelligence said.
“We expect China’s plug-in sales to recover in 2021 on the back of a wider auto market recovery and the extension of the NEV subsidies to the end of 2022. The subsidy rate will remain unchanged for the rest of 2020 and is projected to decline by 10 per cent and 20 per cent in 2021 and 2022 respectively. Greater competition in China’s auto and battery markets from players such as Tesla, LG Chem and Samsung SDI will increase momentum to further reduce plug-in costs on an unsubsidised basis and drive penetration post 2022.
The passenger plug-in penetration rate in the European Union is expected to increase by 12 percentage points to 5 per cent this year, as automakers’ production and sales strategies targeted at meeting the EU’s new vehicle emissions rules comes into effect. Climate neutrality remains one of the two priorities in the EU’s long-term transition, and is an important principle in the allocation of the EU’s COVID-19 recovery plan and long-term budget.
“We believe the vehicle emissions standards will remain in place to drive plug-in uptake, supported by investments made by European headquartered carmakers, including Volkswagen and BMW, for the electric vehicle transition.”
“We expect to see fast growth in the EU’s passenger plug-in sales from 2021 onward, as automakers increase their offerings to meet the EU’s average emission target of 95 kilograms of carbon dioxide per kilometre for new cars.”
While lithium demand increased by 73 per cent between 2014 and 2019 to 285,000 tonnes of lithium carbonate equivalent, prices have been falling since January 2018 due to the rapid build-up of a very strong project pipeline and the expectation of a very well-supplied market for the foreseeable future.
S&P Global Market Intelligence expects the lithium balance to remain in surplus during the forecast period as COVID-19 has delayed the increases in global plug-in sales that newly commissioned projects had assumed during their feasibility studies.
“We expect lithium mine and compound supply to decline by 9 per cent and 7 per cent respectively in 2020, compared with a demand decline of 4 per cent. COVID-19 has caused limited supply disruptions this year; however, we expect suppliers adjust their 2020 production plans as the year progresses, in light of lower demand expectations. We expect the lithium market to remain in surplus for a fourth consecutive year in 2020 as total compound supply continues to exceed demand.”
S&P Global Market Intelligence also expects the average lithium price to decline by 30 per cent year over year to US$8,121/t in 2020.
“The monthly lithium price is down 9.5 per cent so far in 2020, to US$8,375/t April 30; we expect the decline to continue into the third quarter due to partial demand recovery and high inventories. We expect prices to improve slightly in the fourth quarter as global auto sales emerge from COVID-19’s effects and supply curtailments affect the physical market.”
“The decline in lithium prices is expected to slow to 3.4 per cent year over year, to US$7,844/t in 2021, as we anticipate a growing market surplus despite the global economic recovery. Lithium prices are approaching the cost of production, however, limiting room for large declines. Lower prices will further discourage supply volume. We expect lithium prices to recover from 2023 onwards; while lithium demand to increase by 96 per cent between 2019 and 2024.”
According to S&P Global Market Intelligence, the cobalt market is expected to be broadly balanced in 2020 and 2021, due to the dominating impact of the shutdown of Glencore’s Mutanda mine in November 2019, which removed about 20 per cent of global cobalt mine supply. Reduced mine supply, coupled with COVID-19-related disruptions to refinery production, is estimated to result in a 9 per cent decline year over year in refined cobalt supply.
Refined demand is forecast to decline by only 5 per cent in 2020, partially supported by the increase in plug-in sales in Europe, where the cobalt-free lithium-ion phosphate, or LFP, is not widely used.
“We expect the market balance to turn to deficit in 2022 as plug-in sales grow strongly while Mutanda remains shut. This will support cobalt prices rising and sustaining above US$20/lb from 2022 onward, inducing Glencore to resume production at Mutanda in 2023. We still expect the market deficit to persist in 2023 and 2024, however, even accounting for the restart. The cobalt price is expected to average US$24.39/lb in 2024.The cobalt market will likely experience greater demand uncertainties from vehicle electrification compared with lithium, because the chemistry choice that affects cobalt consumption intensity more significantly than lithium consumption remains unpredictable.”
“Our base case forecast expects the current share of LFP cathode chemistry in China to be sustained. Tesla will use LFP batteries in the Model 3 vehicles produced in China, but it is not clear if all Tesla vehicles produced in China will use LFP. If they do, cobalt demand and prices will be lower than currently forecasted.”